What Goes Into an Appraisal?

Purchasing real estate can be the biggest transaction most of us will ever encounter. It doesn't matter if where you raise your family, an additional vacation property or one of many rentals, purchasing real property is an involved transaction that requires multiple parties to pull it all off.

Most people are familiar with the parties having a role in the transaction. The real estate agent is the most known face in the exchange. Next, the lender provides the money necessary to bankroll the transaction. And the title company sees to it that all areas of the exchange are completed and that a clear title transfers from the seller to the purchaser.

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So, who's responsible for making sure the value of the property is in line with the purchase price? This is where the appraiser comes in. We provide an unbiased estimate of what a buyer could expect to pay — or a seller receive — for a property, where both buyer and seller are informed parties. A licensed, certified, professional appraiser from Big Sky Appraisal, LLC will ensure, you as an interested party, are informed.

The inspection is where an appraisal begins

To ascertain an accurate status of the property, it's our duty to first conduct a thorough inspection. We must see aspects of the property hands on, such as the number of bedrooms and bathrooms, the location, and so on, to ensure they really are present and are in the condition a typical person would expect them to be. To ensure the stated square footage has not been misrepresented and describe the layout of the property, the inspection often entails creating a sketch of the floorplan. Most importantly, the appraiser looks for any obvious amenities - or defects - that would have an impact on the value of the house.

Once the site has been inspected, we use two or three approaches to determining the value of real property: a sales comparison, a replacement cost calculation, and an income approach when rental properties are prevalent.

Replacement Cost

Here, we use information on local construction costs, labor rates and other factors to calculate how much it would cost to replace the property being appraised. This figure often sets the upper limit on what a property would sell for. It's also the least used predictor of value.

Paired Sales Analysis

Appraisers get to know the communities in which they work. They innately understand the value of particular features to the people of that area. Then, the appraiser researches recent transactions in the vicinity and finds properties which are 'comparable' to the real estate at hand. By assigning a dollar value to certain items such as upgraded appliances, additional bathrooms, additional living area, quality of construction, lot size, we adjust the comparable properties so that they more accurately portray the features of subject.

  • If, for example, the comparable property has a storm shelter and the subject doesn't, the appraiser may subtract the value of a storm shelter from the sales price of the comparable.
  • However, if the subject property has an extra half-bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property.

After all differences have been accounted for, the appraiser reconciles the adjusted sales prices of all the comps and then derives an opinion of what the subject could sell for. At Big Sky Appraisal, LLC, we are an authority in knowing the value of particular items in Chaska and Carver County neighborhoods. The sales comparison approach to value is usually given the most weight when an appraisal is for a real estate purchase.

Valuation Using the Income Approach

A third method of valuing a house is sometimes applied when a neighborhood has a reasonable number of renter occupied properties. In this scenario, the amount of income the real estate generates is factored in with other rents in the area for comparable properties to derive the current value.

Arriving at a Value Conclusion

Analyzing the data from all applicable approaches, the appraiser is then ready to stipulate an estimated market value for the property at hand. It is important to note that while this amount is probably the most accurate indication of what a property is worth, it probably will not be the price at which the property closes. There are always mitigating factors such as the seller's desire to get out of the property, urgency or 'bidding wars' that may adjust an offer or listing price up or down. Regardless, the appraised value is typically employed as a guideline for lenders who don't want to loan a buyer more money than the property is actually worth. The bottom line is, an appraiser from Big Sky Appraisal, LLC will guarantee you discover the most fair and balanced property value, so you can make profitable real estate decisions.